On-Chain Debt, Stables, Markets, and More
Decentralization Risks & Opportunities
Eric Hill, Head of Legal, Lido, Willy Ogorzaly, Head of Decentralization, ShapeShift, Sam MacPherson, Lead Engineer, MakerDAO, Manny Rincon-Cruz, Founder, Buttonwood (Moderator)
The world of decentralized finance (DeFi) is a wild and exciting place, with risks and opportunities lurking around every corner. In a recent panel discussion, leaders from Lido, ShapeShift, and MakerDAO shared their experiences in the quest for true decentralization and the need for improved risk management.
While the panelists agreed that achieving decentralization is a ‘tall mountain to climb,’ they noted decentralization is a spectrum.
In terms of experiences, we heard what it was like to witness ShapeShift transform from a company running a centralized exchange to becoming a DAO that maintains a community-owned interface. Since the summer of 2021, ShapeShift has taken a piece by piece approach in adopting new tools and further decentralizing their stack. One example is ditching the servers and databases of user accounts, and instead hosting the exchange interface on IPFS. But the work doesn’t stop there. In order to become completely ‘uncensorable and unstoppable,’ ShapeShift’s next step is to fully decentralize the backend and the node infrastructure. ShapeShift is working with Coinbase Cloud and Arkeo to solve this. Arkeo is a new Layer-1 that is expected to come out later this year.
MakerDAO, on the other hand, is taking a different approach. We learned from Sam how MakerDAO’s ‘Endgame’ influenced the direction and governance process for new innovation initiatives. MakerDAO is taking the approach to lock down the core protocol to its most basic elements, and move the innovation to subDAOs. subDAOs will have their own token, line of credit, and “emergent governance structure.” Sub DAOs act like subsidiaries of MakerDAO with the goal of advancing the utility of DAI. Just weeks ago, the Spark Protocol, developed by Phoenix Labs, was introduced to bring increased lending market features to Maker.
While the mission towards a decentralized future is exciting, it’s not all sunshine and rainbows in DeFi. Regulatory concerns continue to loom large, with regulators struggling to keep up with the ever-evolving landscape. There are some ‘known unknowns’ that exist, but that doesn’t mean that DeFi teams can’t take steps to mitigate and manage risk through self-regulation.
Eric remarked that in order to win, we need to avoid being “low hanging fruit,” and to do that we need to watch what we say: “Ironically, it’s not the things the code does, but it’s the things that we say.” There are initiatives towards a DeFi glossary underway that industry players should look out for, as taxonomy is a major problem regulators have with crypto. DeFi participants can help themselves by cleaning up small “attack surfaces,” and shopping around different jurisdictions to see which is most welcoming for their specific business.
Eric Hill, Global Head of Legal, Lido (@Rotorless)
Eric has an extensive background advising various blockchain projects. He continues to serve with ShapeShift’s Treasury Management Committee and was previously a governance consultant at Polygon.
About Lido: Lido is the most popular Ethereum liquid staking solution, allowing users to stake their ETH while keeping it liquid and transferable. This allows Lido’s staked ETH (stETH) to be used in other DeFi applications. Learn more: lido.fi
Sam MacPherson, Lead Developer, Spark Protocol (MakerDAO) (@hexonaut)
After being part of the community for 2 years, Sam joined MakerDAO as the first smart contracts developer and later joined the Protocol Engineering team full time. Sam coordinates with other DAO leaders across technical, business and strategy to grow the Maker ecosystem.
About MakerDAO and Spark: MakerDAO is the protocol behind DAI, one of the most popular stablecoins. Spark Protocol is the growth-focused arm of MakerDAO. Its first product is Spark Lend, which is building an Aave v3-style lending market on MakerDAO. Learn more: makerdao.com
Willy Ogorzaly, Head of Decentralization, Fox Foundation (@willyogo)
Willy leads decentralization at the Fox Foundation, the entity supporting work on the ShapeShift protocol. Willy was previously the CEO of Bitfract, the first tool for trading bitcoin for other digital assets, which was acquired by ShapeShift in 2018, whereafter Willy became ShapeShift’s principal product manager. His work now focuses on achieving ShapeShift’s full decentralization.
About ShapeShift: ShapeShift is a decentralized community-owned interface supporting 170+ wallets across 9 chains. ShapeShift continues to be a first-mover across areas like governance, mobile app development,, and treasury management. Learn more: shapeshift.com
Manny Rincon-Cruz, Founder, Buttonwood (@mrinconcruz)
Manny is a financial historian, and before Buttonwood specialized in the history of Chinese central banking. He advises various crypto projects, co-authored the Ampleforth white-paper, and publishes infrequent essays on protocol design and history at thinking.farm
About Buttonwood: Buttonwood is building a suite of DeFi applications, including AMMs, tranche pools, and programmable debt. Buttonwood’s smart contracts have additionally become used in a growing ecosystem of other DeFi teams and builders. Learn more: button.finance